You need a macro view to answer one question, how’s the water?
As the expression goes, “An older fish swims past younger fish and asks,”How’s the water today boys? The younger fish nod as the older fish swims along. One younger fish turns to the other and asks, what’s water?”
In our economy, the Fed sets the tempterature of the water and first the first time in decades, it’s getting colder. The era of cheap money is officially over as rate hikes have us paying 2x our DoD budget on the free debt we got just one year ago.
We’re officially asking our future generation to grow our economy over 100%. Our debt looks like we just got back from now, not about to enter 3 after the most peaceful decades in recent history.
To give an idea of how sensitive our economy is to debt, Japan raised their rate 0.2% and their financial market crashed.
Cooling the waters means less of it. For the first time in decades, the amount of money is our economy shrunk. M2, our money stock, is declining as the Fed reversed Budget Sheet policy and began selling off assets and stashing the cash.
My brand of economics forecasts a mirroring between the change in money and a reflected response in prices. Unless offset by more growth, falling prices may cause a recession. It’s called the Quantity Theory of Money.
We cannot and will not default on our debt. That leaves three options:
Grow our way out of it
Keep kicking the can
Print more money
…are you starting the see the appeal of a money your government can’t influence?
Most brands of economics says something about the amount of money in an economy and inflation, what do we know.